Bank of China and China Merchants Bank are arranging a loan facility of about $800 million to finance a Chinese consortium's $1.9 billion acquisition of US-listed OmniVision Technologies, according to two sources familiar with the matter.
The Chinese consortium comprises Beijing-based Hua Capital Management, Citic Capital and Goldstone Investment, a subsidiary of Citic Securities. Bank of China is the mandated lead arranger and sole bookrunner and China Merchants Bank is the lead arranger.
The $800 million financing includes a six-year term loan and a one-year bridge loan. According to the sources, the banks are expected to hold the majority of the acquisition debt on their balance sheet and could distribute a very small portion through a clubbed deal.
Acquisition financing, which includes hedges and swaps, has been a lucrative source of business for foreign banks but they have found it hard to compete against their mainland peers, which have more appetite to hold sizeable loans on their balance sheet, as reflected by OmniVision's acquisition loan.
"It's a big loan to hold on the balance sheet. Chinese banks are just much more aggressive,” said one of the sources.
The deal is the second recent buyout of a US-listed company to be funded by mainland lenders. Chinese online gaming company Perfect World in late April entered into a formal agreement to be bought out by its founder and chairman Michael Yufeng Chi. China Merchants Bank and Wing Lung Bank are funding the deal's $900 million committed loan facility.
Hungry for chips
OmniVision, which develops camera image sensors, on April 30 entered into a definitive agreement with the Chinese consortium. Under the terms of the agreement OmniVision shareholders will receive $29.75 per share in cash. The agreement was approved by the company’s board of directors and OmniVision shares closed at $27.33 on May 4.
The OmniVision deal is expected to close in the third or fourth quarter of fiscal year 2016 and is subject to approval by OmniVision shareholders and regulators, including clearance from the Committee on Foreign Investment in the US. OmniVision will also be required to divest certain investments in Taiwan, including some of its interest in a joint venture, as required under Taiwan law, the company said in the release.
The deal is one among many take-private transactions within the semiconductor industry, as the Chinese government seeks to build up its semiconductor industry onshore and reduce its dependence on imports.
Chinese companies have typically targeted US-listed Chinese companies under management they are comfortable working with. OmniVision Technologies' CEO Shaw Hong, for example, was educated at Jiao Tong University in China. He is expected to remain at OmniVision in the same capacity following the transaction, OmniVision said in the release.
Chinese companies' acquisition programmes in the semiconductor sector are ongoing. Jiangsu Changjiang Electronics Technology is in the process of acquiring Singapore-listed semiconductor assembly company Stats Chippac. In late 2013, Tsinghua Unigroup bought Spreadtrum Communications.
To support companies seeking to make investments within the semiconductor space, the Chinese government last year set up an Rmb120 billion ($19.6 billion) fund. However, bankers say targets are becoming scarce, which could slow down the deal spree.